TMCs' New World Order: Mega Partners' Realignments Augur Further Agency Acquisitions

Three weeks after the owners of both the Business Travel International and the TQ3 Travel Solutions joint ventures announced they were splitting, the corporate market generally is reacting favorably to the transformed landscape.

The dramatic multinational travel management restructuring came when owners of Dutch-based BCD Holdings and U.K.-based Hogg Robinson determined that single ownership of BTI by either party was unachievable. Following the decision to split, BCD bought out the holdings German-based TUI had in TQ3 Travel Solutions, leaving Navigant with the TQ3 name, but without an international partner.

Several industry sources opined that the three entities emerging from the ashes ultimately will provide greater stability and reliability for global buyers. Some warned that pledges of "business as usual" from former partners serving mutual accounts will be honored, but could fracture as contracts come up for tender.

Meanwhile, the new international travel management companies must address the gaps in each network, so more short- and medium-term upheaval is expected as networks rush to acquire TMCs in key markets and sign licensees in less important ones. "The TMCs have some challenges," said John Caldwell, president of consulting firm Caldwell Associates, referring to the task of reorganizing personnel and processes. "Buyers thinking of going out to bid may want to wait seven to nine months to see how the dust settles."

Rising from the remains of BTI and TQ3 are:

•BCD Holdings, owner of the BTI partners in the United States (WorldTravel BTI), the Netherlands, Belgium and a handful of Latin American countries. TUI owned 50 percent of the TQ3 brand, managed TQ3 at the global level and also owned TQ3 partners in about 20 countries. Another 20 TUI-owned agencies in mainly leisure destinations that were TQ3 licensees will transfer their allegiance to BCD's new network. BCD also bought a 20 percent stake in British travel management company The Travel Company, which eventually will lead to a full merger.

•Hogg Robinson, which was BTI's managing partner, continues for now with the BTI name in 20 countries where it owns or controls the BTI partner. Hogg also owns Sea Gate Travel Group in the United States, where it is not allowed to use the BTI name. Hogg may drop the BTI name worldwide in favor of the name Hogg Robinson. Licensees in around 70 countries remain BTI partners.

•Navigant International, which last year claimed the second-largest volume of U.S. agency transactions, has assumed what remains of its licensee network in roughly 50 countries. Navigant owns smaller offices in the United Kingdom, Germany, France, Brazil, Australia, New Zealand and Canada.

For existing clients of BTI and TQ3, the immediate concern will be whether the former partners of the two networks can cooperate on mutual accounts now that they are competitors. Doug Baldy, manager of corporate travel services for BTI client Eastman Kodak Co., said he is comfortable with the situation. "It is in the best interest of both companies to keep it business as usual," he said.

Nevertheless, warned Tom Wilkinson, a senior vice president with the consultancy Partnership Travel Consulting, "there are landmines to be avoided as the new TMCs face the challenges of aligning resources and personnel in all three global regions."

Alan Spence, EMEA chief executive for another aspirant global TMC, FCm Travel Solutions, predicted that good intentions of serving mutual clients will come under increasing strain as partners-turned-competitors jockey to pick up accounts. According to Spence, this will prompt some clients to terminate existing contracts prematurely. "In the latter half of this year, there will be a lot of accounts going out to tender," he said.

Looking further ahead, there is general acknowledgement that the consolidation of ownership within BCD, Hogg and Navigant will strengthen the consistency of their service and provide competition for American Express and Carlson Wagonlit Travel. That said, the benefits are tempered by the gaps restructuring has left in each of this trio's international networks. "This is good for corporate buyers because potentially there will be a third global integrated player," said Carlson Wagonlit president and CEO Hubert Joly about BCD. "However, it has no footprint in Asia and is marginal in Latin America."

Eastman Kodak's Baldy is pleased about the enhanced competition. "TQ3, from the standard of our company's strategy of having global single providers, was not a player," he said. "Now, there will be several options. Both Hogg Robinson and BCD will have global reach. Hogg will be a player, but in the U.S. it will have to go beyond having Sea Gate. Similarly, I will be interested in how BCD handles Asia/Pacific."

Echoing Baldy's remarks, BCD, Hogg and Navigant all report that clients told them they needed to consolidate their network ownership. Yet, Wilkinson challenged preconceptions on this issue. "There are some companies for whom it does make sense, but I always question whether a single player can be the best in every country," he said. "You have to consider what you are giving up for what you are achieving. In theory, a single TMC will give you a data cube on a multi-regional basis, but some locations may have to use less efficient methods. It has become easier for clients to consolidate data in other ways."

While the debate continues, the new players are pressing on with integration and expansion plans, all of them promising impending acquisitions. The operation with the biggest challenges of integrating personnel and processes is BCD. A new name for its combined TMC interests is likely to be announced next month, once the acquisition of TUI's interests has received regulatory clearance in Germany. The global CEO of the company will be Mike Buckman, currently CEO of WorldTravel BTI. Marc Hildebrand, president and CEO of TQ3, said he too will join the new company and he anticipates most TQ3 senior management will do so as well.

The BCD acquisition from TUI is expected to close in March. Hildebrand claimed the new company will have a combined workforce of 10,000 and a turnover of $8 billion, making it the third-largest TMC in the world. Hogg Robinson disputes this view, claiming that its operation remains larger than BCD even after the loss of WorldTravel.

Hildebrand said 150 to 180 clients jointly are served by formerly TUI-owned TQ3 and Navigant International. He added that BCD will handle travel for one-third of Fortune 500 companies.

BCD chief executive Joop Drechsel, who will be chairman of the new company, revealed its headquarters will be located in either London or Amsterdam. "The headquarters will not be in the U.S.," he said. "Being a global company, we felt it was important to position them in Europe."

BCD considers its expanded size and coverage, currently standing at 23 countries, broadly sufficient to meet the needs of its clients. However, chairman John Fentener van Vlissingen acknowledged the need to establish a stronger presence in the Far East and told BTN an announcement can be expected before the end of March.

Hogg Robinson split from BCD after two years of merger talks between the partners broke down. "It became obvious from our talks that the two groups had different ideas, so we have decided to call it a day. Naturally, we are sad we cannot take the merger forward but this is still a big opportunity for Hogg Robinson," said Hogg CEO David Radcliffe. "We own outright or have majority shareholdings in more than 20 countries, including a great presence in the U.S."

The presence Radcliffe was referring to is New York-based Sea Gate, which Hogg bought in April 2005 partly to give it representation in the United States should BTI unravel. Although bricks-and-mortar representation throughout the United States is no longer considered as important as in the pre-e-commerce era, sources insist a super-regional like Sea Gate cannot do the job alone. Sources expec at least two more TMC acquisitions from Hogg in the United States in the next few months, in addition to one in the United Kingdom and the shoring up of gaps in the Netherlands and Belgium.

Navigant International has even larger gaps to plug now that it is left with a strong position in the United States but only a limited presence elsewhere. Chairman and chief executive Ed Adams told BTN that Navigant will seek to keep its network of owned offices and licensees together under the TQ3 name. However, Adams said, "we will probably keep the TQ3Navigant name in the U.S. because of the public nature of the company."

Mike Premo, the Navigant executive who was TQ3's senior vice president for Latin America, becomes senior vice president for the new network. Like BCD and Hogg Robinson, Adams said Navigant intends to acquire to ensure ownership in key strategic markets. "Single ownership is fairly critical in the G8 countries," he said.

The past year has seen Navigant beset with financial problems. A publicly traded company, it was delisted from Nasdaq owing to a series of delayed filings and accounting restatements. However, the company last week was re-listed and resumed trading.

Confusingly, TUI and BCD sister company Boron Securities retain stakes of just over 11 percent each in Navigant. These are a legacy from last year when both TUI and BCD looked as if they might acquire Navigant to solve their single global ownership dilemmas. Asked last week about its stake, a BCD spokesman declined to comment on Boron's activities but said, "our philosophy is long-term investment." Meanwhile, a TUI spokesman said: "for the time being, we are keeping the shareholding but I wouldn't exclude our being inclined to sell it in the future. It is not a strategic investment."

One international casualty of this month's industry realignments is the global TMC consortium brand Synergi. The Travel Company, which owned 54 percent of the shares, has bought out the other three shareholders and scrapped the name in favor of TTC Global Network. Asked if The Travel Company would participate in any international network other than the one being built by BCD, director Michèle Bibby said "no."

Even TMCs not directly caught up in this month's tectonic shifts are watching events closely. Among these is Carlson Wagonlit, where a messy change of senior management at 50 percent shareholder Accor led to speculation that it may consider selling. However, new Accor president Gilles Pélisson has given a strong indication that the French lodging and services giant intends to retain its shareholding. In a video broadcast to 6,000 Accor employees on Jan. 10, Pélisson said: "concerning Carlson Wagonlit Travel, our role will be to support Hubert Joly's executive and management teams throughout the company's expansion, alongside the Carlson group."

With rivals moving towards single ownership, attention focused on whether Carlson Wagonlit is weakened by having two shareholders. However, Joly said any comparisons between the ownership structure of his company and the joint ventures that ran BTI and TQ3 are misguided. "The fact we have two shareholders is irrelevant," he said. "We are one firm. I am CEO of a company employing 14,000 people worldwide. BTI was a strategic partnership, a joint venture that was an empty shell with no revenue in it."

Another TMC eyeing opportunities is the little-known FCm. Owned by Flight Centers of Australia, it has quietly bought TMCs in 10 countries and signed licensees in another 47. Its weakness is that it only has a tiny presence in the United States. An acquisition promised last year has not materialized, but Spence said FCm expects to complete it later in 2006.

FCm's main strength is in the fast-growing Asia/Pacific region, where it recently won the accounts of Disney and Invensys. Spence said using a smaller international TMC would appeal to some clients and that a global account no longer means the United States, the United Kingdom and a handful of other European countries. Looked at on a truly worldwide basis, "we all have our strengths and weaknesses," he said.

Radius, which has a presence in more than 80 countries, also has been attempting to beef up its international presence. It does not own any of its TMC network but since 2003 around two dozen shareholders have drawn closer by setting common technology and branding standards and investing in a global sales and account management structure. In the past year, that has started to produce some success with the winning of such accounts as oil and lubricants producer Lubrizol, plus such household names as a café chain and software provider.

With Radius shareholders, including some of the brighter independent travel management company owners in several countries, Radius president Tony Hughes acknowledged a few may be picked off by mega-TMCs looking for acquisitions. However, he expects to pick up new TMC shareholders wanting to retain self-determination while looking to trade globally.

Hughes expects that philosophy to be mirrored in the strategies of some corporate buyers. "Single ownership doesn't give any guarantee that a TMC will be the best in each country," he said. "There are alternatives out there and buyers are seeing us as one of them."